The Impact of U.S. Monetary Policy on Foreign Firms

59 Pages Posted: 15 Nov 2022 Last revised: 29 Jun 2023

See all articles by Julian di Giovanni

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

John H. Rogers

Fudan University - Fanhai International School of Finance (FISF)

Date Written: November 1, 2022

Abstract

This paper uses cross-country firm-level data to explore the impact of U.S. monetary policy shocks on firms’ sales, investment, and employment. We estimate a significant impact of U.S. monetary policy on the average foreign firm, while controlling for other macroeconomic and financial variables like the VIX and exchange rate fluctuations that accompany U.S. monetary policy changes. We then estimate the role of international trade exposure and financial constraints in transmitting monetary policy shocks to firms, allowing for a better identification of the importance of external demand effects and the financial channel. We first exploit cross-country sector-level data on intermediate and final goods to show that greater global production linkages amplify the impact of U.S. monetary policy at the firm level. We then show that the impact varies along the firm-level distribution of proxies for firms’ financial constraints (for example, size and net worth), with the impact being significantly attenuated for less constrained firms.

Keywords: U.S. monetary policy spillovers, foreign firms, international production linkages, financial constraints

JEL Classification: E52, F40

Suggested Citation

di Giovanni, Julian and Rogers, John H., The Impact of U.S. Monetary Policy on Foreign Firms (November 1, 2022). FRB of New York Staff Report No. 1039. Rev. June 2023. , Available at SSRN: https://ssrn.com/abstract=4276946 or http://dx.doi.org/10.2139/ssrn.4276946

Julian Di Giovanni (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://julian.digiovanni.ca

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://julian.digiovanni.ca

John H. Rogers

Fudan University - Fanhai International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

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